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Nokia Rumors: Possible Tie with the French Alcatel-Lucent

Nokia rumors: Nokia Corporation (ADR) (NYSE:NOK)’s board of directors has been discussing an association with its French rival, Alcatel Lucent SA (ADR) (NYSE:ALU), according to several sources familiar with the discussions. However, the tie-up is just one amongst many options considered by the board. Their aim is to restructure the firm after the sale of its Devices & Services business -and some licenses for patents- to Microsoft Corporation (NASDAQ:MSFT) for approximately $7.2 billion.

Nokia Corporation (ADR) (NOK), Microsoft Corporation (MSFT)

This is not the first time that Nokia has taken interest in the French firm’s wireless networks business. Around the end of 2012, these two companies had already discussed the possibility of the Finnish firm acquiring Alcatel-Lucent’s wireless segment. Analysts value the business at the range between €1.1 billion and €1.5 billion (Reuters).

Although Nokia is evaluating its future options, the board is yet far from arriving to a final decision. Apparently, the risk that the company carries is an element of concern for some of the board members. Alcatel-Lucent has been losing cash at very high rates since it was first created in 2006 from a merger of the French company and AT&T Inc. (NYSE:T)´s former equipment business, Lucent Technologies.

Currently undergoing a big restructuring process, “aiming to slash €1 billion in costs and refocus the company on a narrower range or profitable products” (WSJ), Alcatel-Lucent’s future looks quite uncertain. And its most recent results are not very encouraging either; during the second quarter, the company reported a net income loss of €885 million, mainly driven by restructuring charges of €194 million and an impairment of assets of €552 million.

“While combining with Alcatel-Lucent would be a risky bet for Nokia, the French company has lucrative contracts with carriers such as Verizon Wireless and AT&T in the U.S., as well as China Mobile Ltd., one of the world’s largest telecom operators.” (WSJ)

Moreover, people within the firm and the French government feel encouraged by the possibility of creating a European company able to compete with some of the leading telecom-equipment providers around the world. In fact, a combination of Nokia Solutions and Networks (NSN, formerly Nokia Siemens Networks) and Alcatel-Lucent would result in the second largest player in the network infrastructure market, with a market share between Ericsson (ADR) (NASDAQ:ERIC)‘s 36% and Huawei Technology Co Ltd (SHE:002502)‘s 32%, according to a recent Morgan Stanley (NYSE:MS) note to investors.

Since formal discussions with Alcatel-Lucent have not yet been initiated, sources say, spokespeople from both companies refused to comment. Check back here for updates on the Nokia-Alcatel possible tie-up, and for more Nokia rumors.

Disclosure: Javier Hasse holds no position in any stocks mentioned

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